Today on zoom out for lunch Bernard Hickey and Jarrod Kerr discuss the state of the local government bond markets, and what could be done to free them up again so councils can borrow and fund managers can trade. Photo: Lynn Grieveson

Bernard & Jarrod: Why the RBNZ should buy council bonds too

Bernard Hickey talks to Kiwibank Chief Economist Jarrod Kerr about his forecast GDP could fall as much as 17 percent this year, and why the Reserve Bank should buy council bonds as well as Government bonds.

Newsroom Pro Managing Editor Bernard Hickey and Kiwibank Chief Economist Jarrod Kerr talk about the big swings in financial markets overnight and the shock news that Bauer Media's New Zealand operations, including The Listener, North and South, Women's Day and the Woman's Weekly have closed, effectively immediately because of a collapse in advertising revenues.

Jarrod and Bernard talk to Newsroom Co-Editor Mark Jennings about why Bauer has taken this shock decision and how the ripple effects through the advertising-funded media have only just begun.

They then talk through Jarrod's research note yesterday that included a central forecast for GDP to fall 12 percent in the June quarter from a year ago and five percent for the full 2020 calendar year. That depends on a relatively short lockdown. If the lockdown were to last through the June quarter, he saw the worst case scenario being a 30 percent fall in June quarter GDP and a 16 percent fall for the year.

Jarrod and Bernard also look at what's happening in the local government and corporate debt markets, which have frozen in recent weeks in a similar way to the Government debt market. The Reserve Bank's announcement last week it would buy up to $30 billion worth of central Government bonds has unfrozen that market, but the markets for Local Government Funding Agency bonds and other semi-Government bonds such as the Auckland Airport are still dysfunctional.

They talk to Kiwi Invest Head of Fixed Income Diana Gordon about the state of the local government bond markets, and what could be done to free them up again so councils can borrow and fund managers can trade. They call for the Reserve Bank to intervene in a similar way to pledge to buy local government bonds to unfreeze the market.

Bernard, Jarrod and Diana then talk about how crucial local government borrowing and investment appetites will be in any attempt to soften the blow of Covid-19 with widespread infrastructure work, much of which will require local government involvement. Many councils are also hamstrung by debt restraints from offering rates relief or rates freezes to small businesses currently without any income.

Jarrod and Diana argue Reserve Bank intervention could break that logjam and help the central Government recovery efforts.

This is part of a daily 'Bernard and Jarrod Zoom out for Lunch' webinar series during the lockdown.

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